The Delaware Court of Chancery in Matthew v. Laudamiel, C.A. No. 5957-VCN, (Del. Ch. Feb. 21, 2012) addressed, among other things, the issue of whether the dissolution and cancellation of a limited liability company transforms derivative claims into direct claims held proportionately by the LLC’s members.  The Court held that such is not the case.  Rather, the Court held that after the filing of the certificate of cancellation, such claims must be brought in the name of  the LLC or derivatively by its members after reviving the LLC by obtaining revocation of its certificate of cancellation. 

In so ruling, the Court outlined the dissolution process for an LLC as set forth in 6 Del. C. §§ 18-801—18-806. 

“After an act of dissolution occurs, an LLC is to be wound up and its assets distributed as provided by 6 Del. C. § 18-804. The persons winding up an LLC’s affairs may prosecute and defend suits on the LLC’s behalf until the filing of the certificate of cancellation.  After the certificate of cancellation has been filed, suits generally may not be brought by or against an LLC.  But, under 6 Del. C. § 18-805, at any time after the filing of a certificate of cancellation, the Court of Chancery may, on application, appoint one or more managers or other persons to act as trustees or receivers to take charge of the [LLC’s] property, and to collect the debts and property due and belonging to the [LLC], with the power to prosecute and defend, in the name of the LLC, suits as may be necessary or proper for the purposes aforesaid.  The trustee or receiver may also be given the broad power to do all other acts which might be done by the [LLC], if in being, that may be necessary for the final settlement of unfinished business of the [LLC].”  

Importantly, while emphasizing the freedom of contract afforded to LLC’s, the Court noted that it was merely addressing the default rule “governing the disposition of such claims in the absence of some other contractually agreed-upon process that might possibly be capable of displacing the background rule.”  In other words, parties to an LLC agreement may include a provision that details an alternate method for pursuing the claims of a cancelled LLC.

In summary, as prescribed in 6 Del. C. § 18-805, members of an LLC have an avenue to pursue claims in the name of the LLC even after the filing of a certificate of cancellation.  Hence, a person who harmed an LLC would not be cleared of any related liability simply by filing a certificate of cancellation.  Section 18-805 makes clear that undistributed claims of the cancelled LLC may not be asserted directly by the LLC’s former members.   Instead, the means by which such claims would be brought would be in the name of the LLC, as direct claims of the LLC or derivative claims of its members, after successfully nullifying the certificate of cancellation.

This case presents a clear roadmap on how a member of an LLC that has been dissolved and cancelled can, after the filing of a certificate of cancellation, bring an action to address wrongdoing perpetrated by another member upon the LLC.